TransUnion: Subprime Borrowers Help Push Canadian Debt Levels Up 3%

TransUnion’s (TRU: NYSE) latest Canada Industry Insights Report found that the average Canadian’s non-mortgage debt level rose to $21,348 in Q1 2016, up 2.7% from Q1 2015. The increase was particularly visible outside of the oil patch, with Ontario and Quebec seeing the greatest rises. Debt levels rose for most major credit products, with lines of credit being the only outlier, experiencing a 0.54% average balance decline.

Average Consumer Non-Mortgage Debt Levels

Q1 2015

Q1 2016

YoY Change

All Products

$20,785

$21,348

2.71%

Auto Loans

$19,132

$19,538

2.12%

Credit Cards

$3,697

$3,764

1.80%

Installment Loans

$22,504

$23,591

4.83%

Lines of Credit

$29,816

$29,656

-0.54%

“

“The story on the debt front is that average balances haven’t moved much, if you consider all Canadians together. But once we segment by risk tiers, we find a gradual shift where subprime consumers are increasing their share of the debt load relative to the low-risk population.”

Jason Wang, TransUnion’s director of research and analysis in Canada

„

“In credit cards, for example, the national average balance only increased by 1.8% from last year, but the subprime card growth rate was 5.7%. In fact, prime or better segments actually reduced their balances. Although subprime consumers do not make up the bulk of Canadian credit users, we are going to keep a close eye on this trend,” added Wang.

Average Credit Card Balance per Consumer for Each Risk Tier†

Q1 2015

Q1 2016

YoY Change

Subprime

$6,245

$6,601

5.7%

Near Prime

$6,100

$6,260

2.6%

Prime

$6,134

$5,847

-4.7%

Prime Plus

$3,513

$3,372

-4.0%

Super Prime

$1,596

$1,573

-1.5%

Total

$3,697

$3,764

1.8%

Regional Differences on the Delinquency Front

While national serious delinquency rates (the ratio of all accounts 90 or more days past due for all non-mortgage loan types) increased approximately 3% from 2.45% in Q1 2015 to 2.52% in Q1 2016, some of the most populous provinces such as Ontario and British Columbia experienced declines. The largest delinquency rate increases occurred in provinces most impacted by the oil slump—Alberta and Saskatchewan. This regional difference is also consistently observed across different loan types.

90+ Day Delinquency Rates for All Non-Mortgage Loans

Q1 2015

Q1 2016

Yearly PCT. Change

Canada

2.45%

2.52%

2.98%

Alberta

2.50%

2.80%

11.92%

British Columbia

2.47%

2.43%

-1.42%

Ontario

2.59%

2.57%

-0.80%

Quebec

1.89%

2.01%

6.29%

Saskatchewan

2.88%

3.04%

5.56%

“When it comes to loan default rates, we are looking at two distinct groups: oil-sector provinces and the rest of the country,” said Wang. “We continue to see material delinquency increases in the oil provinces, and we suspect that it will continue over the next few quarters.”

“While financial institutions are understandably inclined to focus their attention and resources—particularly in the risk management arena—on their exposure to the oil patch, it’s important to note that the robustness of consumer spending and credit performance outside the oil provinces shouldn’t be ignored,” added Wang. “Lenders will likely benefit from the generally healthy and well-functioning consumer credit marketplace in the rest of Canada, particularly in those areas where the stable trend in credit usage and the sheer size of the consumer market present good opportunities for growth.”

Credit Card Delinquencies Returned to 2014 Levels

Canadian credit card delinquency rates rose more than 14% between Q1 2015 (1.81%) and Q1 2016 (2.06%). Despite the rise, credit card delinquency rates now stand at “normal” levels last observed in 2014.

“The credit card delinquency picture is interesting for a number of reasons. The first quarter reading in 2015 was the lowest level TransUnion had observed since at least 2009. However Canada was technically in a recession in the first half of 2015,” said Wang. “How can this be? The explanation is that defaults are a lagging phenomenon. The seeming improvement in early 2015 was the delayed manifestation of the recovering economy in 2014. However, as the oil slump began disproportionately impacting certain provinces in 2015, the national credit card delinquency rate finally began rising a few quarters later, leading to a big year-over-year jump. This phenomenon proves the importance of using leading indicators when lenders monitor and manage risk.”

More information about the Q1 2016 TransUnion Canada Industry Insights Report can be found here.

About TransUnion Canada Industry Insights Report

TransUnion’s Canada Industry Insights Report is an in-depth, full population-based solution that provides statistical information every quarter from TransUnion’s national consumer credit database, aggregated across virtually every active credit file on record. Each file contains hundreds of credit variables that illustrate consumer credit usage and performance. By leveraging the Industry Insights Report, institutions across a variety of industries can analyze market dynamics over an entire business cycle, helping to understand consumer behaviour over time and across different geographic locations throughout Canada. Businesses can access more details about and subscribe to the Industry Insights Report at http://www.transunioninsights.ca/IIR/.

Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion reaches consumers and businesses in more than 30 countries around the world on five continents. Based in Burlington, Ontario, TransUnion provides local service and support throughout Canada. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide. We call this Information for Good. Visit www.transunion.ca to learn more.